Why It Is Important To Invest For Your Retirement Now

What is financial independence? Here’s the basic definition: your assets generate an income at least equal to your essential expenses.

If you want to reach financial independence, you’ve got to understand big picture investing.

First off, you have to decide how much money you will need to retire on per year. This is your ultimate destination (or end goal).

Calculating how much money you will need to retire on per year can be pretty easy actually. Let’s say, for example, you are 25 years old now, and feel comfortable with the idea of living off of $6500/month (in today’s money value) during your retirement starting at age 65.

Now, take that $6500/month and factor a few more items into the equation: your potential social security income, any pension income you might have coming to you, any part time work you may be willing to do, and of course, taxes you will have to pay on your retirement income.

Let’s say after all that, the actual extra income you will need from your retirement fund (beyond SS, Pensions, etc), is down to $1650/Month (or $19,800/year)

Next, run that $19,800 through a compound interest calculator, factoring 3% annual inflation for 40 years, and you’ll see you need about 5,400/month (or $64,600/year) in future money value, to live your retirement life. Finally, multiply that $64,600 by 25 (trust me on this formula for now), and you get about $1.615 million dollars.

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